Directors recently ranked strategic planning as the number one topic to which they want to devote more time in 2014.1 It’s easy to understand why: gridlock in Washington is wreaking havoc on business planning. Throughout much of the fall, the American economy was held hostage as political brinkmanship in Washington partially shut down the federal government and brought the country to the edge of defaulting on its debt. Ultimately, Congress managed only to kick the can down the road by voting to reopen the government at current spending levels until January 15, 2014 and to raise the debt ceiling until February 7, 2014. During the interim, congressional leaders will try to hammer out a new budget before mandatory spending cuts agreed to in 2011 kick in. Fearing that “governing by crisis” is becoming the new norm, the business community remains skeptical that any meaningful long-term solution to the nation’s fiscal woes will be reached before the country has to suffer through this fire drill again.

Adding to the uncertainty is growing concern over the Federal Reserve’s massive bond buying program. Critics charge that the unprecedented stimulus program may be creating asset bubbles, and the financial markets have reacted strongly to any news about the Fed’s future plans for the program. Hints this past summer that the Fed was eyeing a pull-back roiled markets around the world and dealt a serious blow to many emerging market economies.

It is no surprise that in a recent poll CEOs ranked the government’s response to the fiscal deficit and debt burden as the top external threat to their company’s growth prospects.2Economistsestimate that uncertainty over fiscal policy has already shaved almost half a percentage point off GDP this year.3In light of the uncertainty, companies have continued to stockpile cash and are now sitting on $1.8 trillion in cash and other liquid assets.4Corporatereluctance to spend in the face of all the uncertainty and tepid economic growth is placing increasing pressure on profits. Since the financial crisis profit growth has been driven largely by cost-cutting. While the profits of S&P 500 companies have doubled since June 2009 and are near a 60-year high,5wagesand salaries as a percentage of GDP have fallen to the lowest level on record and corporate capital expenditures are about one-third below the average in previous recoveries.6With costs cut to the bone, many companies are now facing important strategic decisions about how best to deploy their assets to grow profits.

In addition to uncertainty over the nation’s fiscal and monetary direction, management and boards face a host of other challenges as they plot their company’s long-term strategic direction. CEOs around the world recently ranked technology as the single most important external factor that will shape their company’s future in the next three to five years, even more so than market or economic factors.7As the pace of technological change accelerates in an increasingly interconnected world, it becomes ever more difficult to stay abreast of the changes, much less grasp their implications.8This poses significant challenges for management and the boards of directors overseeing management’s strategic plans.

Perhaps nowhere are the advances in technology more prevalent than in the information domain. It is estimated that by 2020 there will be over 50 billion devices connected to the Internet.9Theexplosion of mobile technologies and social media is changing the way companies compete. In a digital world where one tweet or one Facebook “like” regarding a company’s products or services can go viral in a matter of seconds, the customer is king. One executive recently lamented “[a]s customers gain more power over the business via social media, their expectations keep rising and their tolerance keeps decreasing.”10 In addition to changing the rules of customer engagement, advances in information technology offer significant new opportunities to cut costs through more efficient utilization of employees, office space, and supply chain and distribution channels.11

Thanks to this ubiquitous interconnectivity, companies now have available to them a mind-boggling quantity of data. In fact, businesses will create more data in the next two years than in all of history.12“Big data” represents a vast wealth of useful information for those companies that can figure out how to mine it. A recent study showed that companies using data-driven decision-making are, on average, five percent more productive and six percent more profitable than their competitors.13Accordingto a recent report, 30 percent of companies have invested in big data technology and another 34 percent plan to invest within the next two years.14

Directors are becoming much more attuned to the important role that information technology will play in their company’s future. Over half of directors responding to a recent survey said that effective use of IT is either critical or very important to the creation of long-term shareholder value, and almost 60 percent of directors responding want to devote more time in the coming year to the opportunities and risks posed by information technology.15

Overseeing IT strategy may be particularly challenging for the average director of a public company who, at 60-plus years of age, may not have embraced social media and mobile technologies to the same degree as his or her children. In a recent survey, almost one-third of directors responding said that their company’s strategy was not adequately supported by a sufficient understanding of IT at the board level16and, in another study, more than three-quarters of the directors responding said that they personally, as well as the boards on which they serve, need improvement in their understanding of IT risks.17Perhapsin response to these deficiencies, over a third of boards engaged an outside consultant last year to advise the board on IT strategy and risk.18

This post was excerpted from our annual Top 10 Topics for Directors in 2014 alert. To read the full alert, please click here.

13A. McAfee & E. Brynjolfsson, “Big Data: The Management Revolution,” Harvard Business Review (Oct. 2012) at pp. 63-64 (citing study led by the authors and a team at MIT Center for Digital Business, working with McKinsey’s business technology office and L. Hitt and H. Kim).

14Gartner Inc. online survey of 720 IT and business leaders conducted in June 2013, reported in J. Jordan, “The Risks of Big Data for Companies,” The Wall Street Journal (Oct. 20, 2013).